Mutuals and Community Banks - The Strategic Lessons

Synopsis

The content provides a high level perspective of the mutuals and community banks sector, touching on key issues such as the preferential tax status of US credit unions

The many case studies within this report will reveal much about the sector that is innovative and exemplifies global best practice

Sectors discussed are subject to a number of ongoing pressures which may threaten the survival of individual organisations and the business models concerned

An aggregation of best practice, drawn only from the case studies within this report, would provide an industry-leading model through which to offer retail financial services in the 21st century

Summary

There is increasing scrutiny by listed institutions of any perceived or real unwarranted advantages enjoyed by the organisations discussed in this report. And their concerns about the lack of a level playing field continue. In the US, it is hard not to sympathise with a banking system that is both subject to the rigours of meeting stock-market expectations, while competing with the credit union movement. Many of the credit unions have the size, strength and product range of the banks with which they are competing - but also continue to enjoy tax-exempt status. Moreover, as the case study reviewing the position of the Delta Community Credit Union reveals, this type of institution is able to widen the qualifying criteria for membership should the need arise. Overall, this debate in the US seems unlikely to subside without some movement. The European Union did rule in favour of the withdrawal of valuable German state guarantees, which were an advantage enjoyed by the savings bank movement and other organisations. The movement has come to terms with the increased cost of funding that this created. Developments in the German banking sector in 2010-11 have had the effect of placing much of the system under renewed and severe scrutiny. The activities of the Landesbanken have been an issue for many years, and their underperformance has placed a strain on the whole of the community, mutual and state banking sector.

Scope

The report assesses the state of distinctive sectors that are not subject to the disciplines of global stock markets

It concerns itself with the provision of 'retail banking services' through institutions owned by members, communities or municipalities

The institutions examined include building societies, co-operative banks, credit unions and various types of community banks

A common approach of many mutuals is the extent to which they have benefited from economies of scale offered by dedicated service providers, which are discussed in the report

Reasons To Buy

Consider the areas in which these types of institution have found particular success

Content in this report illustrates the extent to which these types of organisation enrich the retail financial services sector by offering a real alternative to clients across all major segments

While animosity towards the sector may continue in some markets, a key insight from this report is that there is much to learn from the innovatory work of mutuals and community banks

An aggregation of best practice from this report would provide an industry-leading model through which to offer retail financial services in the first half of the 21st century

Table of Contents

Executive Summary

Table of Contents

Table of Figures

Table of Tables

1 Overview

1.1 The scope of this report

1.2 The business models

1.3 Co-operative banks

1.4 National Agricultural Co-operative Federation, South Korea

1.5 Credit unions

1.6 Community banks

1.7 Heightening competition

1.8 The arguments

1.9 The Golden 1 Credit Union

1.1 Global best practice

1.2 A history…and a future

1.3 Conclusion

2 The UK building society sector

2.1 Introduction

2.2 A new era

2.3 The Building Societies Association

2.4 Conclusion

3 Nationwide Building Society, UK

3.1 Preamble: before 'Nationwide'

3.2 The world's largest building society

3.3 Dunfermline Building Society: transfer of assets to Nationwide Building Society

3.4 Members and customers

3.5 Defending its mutual status

3.6 Mutually-orientated channel strategy

3.7 Supporting communities

3.8 Investing in colleagues

3.9 The evolving business model

3.10 Building for the future

4 Abacus - Australian Mutuals

4.1 The Australian mutual sector: an overview of associations and service companies

4.2 CUSCAL

4.3 Indue

4.4 Future prospects

5 Heritage Bank, Australia

5.1 Background

5.2 Business highlights at June 2011

5.3 Product delivery

5.4 Member and customer relationships

5.5 The Heritage Community Branch model

5.6 Compliance and the Heritage

5.7 Conclusion

6 Newcastle Permanent Building Society, Australia

6.1 Background

6.2 The Newcastle today

6.3 Financial Year Highlights 2011

6.4 Delivery channel development

6.5 Products

6.6 Returning value to members and communities

6.7 Conclusion

7 Community banking in the US

7.1 Background

7.2 Mutual Holding Companies

7.3 American Bankers Association (ABA)

7.4 Demutualisation

7.5 The issue of taxation

7.6 Conclusion

8 Bendigo and Adelaide Bank, Australia

8.1Background

8.2 The merger with Adelaide Bank

8.3 The community banking model

8.4 Community bank start-ups

9 Community banking in Germany

9.1 Introduction

9.2 The Savings Bank Finance Group Management structure

9.3 Group businesses

9.4 Maintaining a strong financial base

9.5 Landesbank Berlin

9.6 A customer for life

9.7 The Mittlestand - at home and abroad

9.8 Future expectations - DSGV research

9.9 In the community

10 The German Sparkassen

10.1 A major force

10.2 Branch innovation

10.3 Accommodating the young consumer

10.4 Sophisticated self service facilities

10.5 Conclusion

11 The European co-operative banking sector

11.1 Size, strength and diversity

11.2 The European Association of Co-operative Banks

11.3 Membership and objectives

11.4 The role of co-operative banks

11.6 Credit Agricole

11.7 Raiffeisen Zentralbank Oesterreich

11.8 Raiffeisen Bank International

11.9 Unico Banking Group

11.10 Conclusion

12 Rabobank Group, The Netherlands

12.1 Background

12.2 The origins of Rabobank

12.3 Today's Rabobank

12.4 Group Strategy 2013-2016

12.5 Recent developments

12.6 Membership development

12.7 Delivery channel strategy

12.8 Conclusion

13 The Co-operative Bank, UK

13.1 A democratic ownership

13.2 The growth of the Bank

13.3 Laying the foundations

13.4 Co-operative banking principles

13.5 Profit generation to create a sustainable model

13.6 Market-leading colleague satisfaction

13.7 Market leading customer satisfaction

13.8 Membership growth

13.9 Co-operative banking in practice

13.10 Ethical finance

13.11 Financial inclusion

13.12 Environment

13.13 Conclusion

14 Members and Education Credit Union, Australia

14.1 Background

14.2 Employee focus

14.3 A differentiated credit union

14.4 The Bankmecu sustainability strategy

14.5 Looking to the future

15 The US credit union movement

15.1 Origins and growth

15.2 Credit union key statistics - 2011

15.3 The Credit Union National Association

15.4 The CUNA Mutual Group

15.5 Tax exempt status

15.6 Conclusion

16 The US credit union movement service corporations

16.1 The developing credit union service organisations

16.2 Credit Union Service Corporation

16.3 CO-OP Financial Services

16.4 PSCU Financial Services

17 Delta Airlines: the employer

17.1 The credit union

17.2 History and the broadening franchise

17.3 Delivery channels

17.4 Looking to the future

List of Tables

Table 1.1: UK building societies, ranked by group assets (May 2012)

List of Figures

Figure 1.1: History of the National Agricultural Co-operative Federation

Figure 4.1: Abacus coverage across Australia

Figure 4.2: Total Australian domestic resident assets ($'billion) as at December 2011